Can employee engagement deliver business performance: And the survey says…

Many employers regularly survey staff on how happy they are at work, but a smaller number actually make the link between engagement and business performance. Kate Hilpern spoke to four companies about how they make the connection.

Royal Bank of Scotland

“The translation of employee engagement into shareholder value is the bit that I think is missing in a lot of companies,” says Greig Aitken, head of human capital strategy at Royal Bank of Scotland (RBS).

“Knowing that the engagement score of a particular segment of your organisation is 89% is absolutely meaningless unless you understand how you can improve it and what benefits there are to improving it.”

At RBS, every business unit knows its measure of employee engagement, and every measure is underpinned by management actions that will impact directly on customer satisfaction and business performance. With more than 40 brands across 30 countries, employing more than 150,000 people, this has been quite a challenge, according to Aitken.

“We had a good starting point when the HR director and I came up with our employee engagement proposition in 2001. We already had a global employee survey, for which we got a response rate of 87%,” says Aitken.

The group calculates an ‘engagement index’ from the annual survey, measuring three key areas: employees’ desire to say positive things about RBS, to stay with the company, and to go the extra mile to contribute to business success.

“Employee engagement is not just about employee satisfaction – it is about the discretionary effort that differentiates high-performing staff,” he explains.

Once the survey findings have been identified (RBS also draws information from joiners’ and leavers’ surveys, as well as local ‘pulse’ surveys), it can build a model of 10 engagement ‘drivers’. This feeds back into how the company manages performance, indicating the top three issues staff need to work on, as well as the three they are currently good at, but need to keep an eye on.

“One of the main things that our work has highlighted so far is that three businesses with the same engagement score don’t necessarily have the same three reasons to improve,” says Aitken.

The index also enables RBS to examine specific business units, or specific segments of staff – for example by tenure, location and seniority. All of this is supported by the RBS human capital toolkit, a suite of interactive HR tools available to more than 1,000 HR staff on the group’s intranet. There is even a human capital board backing up the entire strategy.

RBS has reported a 45% increase in job satisfaction over the past three years. Aitken and his team are now working with Harvard Business School and employee research and consulting firm ISR to link employee engagement, customer service and business performance measures.

What can other companies learn?

Get the basics right first: there is no point consulting with the business on drivers of engagement if you don’t know what your absence or turnover rate is.

Link your model to your business objectives: at RBS, it is all about financial performance and customer service.

Ensure HR is good at advisory skills: measuring is only half the battle.

B&Q

In June 2005, B&Q reached a crossroads. Having enjoyed years of consistent growth, costs started rising faster than sales.

A significant part of the retail giant’s recovery plan was to shift its six-monthly employee surveys from being a barometer of employee perceptions to a more business-critical measure.

B&Q came up with the idea of an ’employee customer profit chain’, which works on the principle that if you recruit talented people and engage them effectively, that translates into a better customer experience and, in turn, into better business performance.

The company used mystery shoppers, customer surveys and business performance measures – as well as bi-annual polls with research company Gallup – to demonstrate why this was the case, according to HR director Martyn Phillips.

“Linkage analysis quickly proved beyond any doubt that if you have a store with high engagement, it always leads to better sales performance, lower absence and lower stock loss,” he says. “These are just a few outcomes that ultimately lead to improved bottom-line figures and then shareholder value.”

The shift in the ratio between engaged and disengaged employees has been particularly radical.

“For every one disengaged employee, there are now seven engaged people,” says Phillips. “If you assume we spend about £500m a year on salaries, and that a year ago we were spending one-third of that on staff members that didn’t want to be here, that means we now have in excess of £100m of resources that we didn’t before. Although we clearly have some way to go, it is a very tangible improvement and that’s a very good start.”

Phillips says that while HR is the ultimate gatekeeper for employee engagement at B&Q, introducing stricter measurement was a collective decision by HR, the board and the chief executive.

Now the concept forms the basis of regular one-to-ones between staff and their managers. “If those managers don’t get good employee engagement scores, they are held accountable, without exception,” says Phillips.

Gallup’s latest employee engagement results – which came out in January – revealed that B&Q has three times the level of improvement it has ever seen in a global organisation within an 18-month period.

What’s more, B&Q is now the highest-rated large retailer that Gallup measures, and the company’s like-for-like sales performance against key competitors has improved sharply.

What can other companies learn?

Ensure your day-to-day HR function works: if people don’t get paid on time and there are lots of vacancies, any engagement model will be futile.

Gain the support of senior executives and the board: without their full commitment – and visibility of that commitment – don’t bother.

Ensure there is an honesty in your business culture: employee engagement requires a deep level of sincerity at every level.

DSG international

DSG international (DSGi), the high street electricals company behind retail brands Dixons.co.uk, Currys and PC World, employs 42,000 people across 14 countries. In such a competitive environment, the company is under constant pressure to justify any of its investment in people and make a return on it.

“That was both our motivation for introducing an employee engagement plan and for making the correlation between that and customer service delivery,” explains Ben Bengougam, DSGi’s HR director. The original idea came from the executive board.

The organisation measures employee engagement via its annual survey, which covers 20% of its employee population, with a 60% return rate.

The questions cover the whole employee experience, from how DSGi deals with honesty and integrity, and how it trains and develops staff, to how it communicates, leads and manages.

DSGi surveys its customers annually against the same set of business values. This covers questions such as: ‘Are we competitive?’, ‘Do we deliver a good service?’, and ‘Are we honest in how we deal with our customers?’.

DSGi then makes direct comparisons between the results of the two surveys (also using mystery shopping results and ad-hoc customer service surveys outside the store), and relates the answers to the economic result of the store. “There is generally a correlation between the three,” says Bengougam.

DSGi believes the key to making engagement impact on success is in focusing on improving the quality of management at store level. “The local store manager in particular is the key factor in delivering engagement, so we are concentrating on a number of activities around that,” he adds.

It is also exploring other ways of re-engaging staff. For example, electrical retailer Currys has changed the way it rewards people from a commission-based model to team-based incentives. “All of this, in our opinion, increases shareholder value because it drives the current performance of our largest business unit in the right direction,” says Bengougam.

But while DSGi ties its employee engagement results into the overall performance of individual brands, it is yet to do this across the group. “We consider that we are on a journey, and the next stage of activity is to be harder and tighter on linking the employee engagement activity to the return of shareholders,” he concludes.

What can other companies learn?

Keep it real: ensure your action plan is as close to your day-to-day business function as possible.

Know your motive: at DSGi, it is about justifying the investments it makes in its people and making a return on it.

Don’t run before you can walk: DSGi has only been surveying its employees for four years, and doesn’t yet feel ready to link results to shareholder value.

Norwich Union

It was research by the Corporate Leadership Council that convinced the executive chairman of Norwich Union UK to make the insurer more employee-centric.

“The research indicates that a 10% rise in engagement leads to a 6% increase in effort, which should in turn lead to a 2% lead in performance,” explains HR director Russell Martin.

The journey began four years ago when Norwich Union started surveying its employees in the general insurance side of the business and two years ago in the life insurance side.

“We look at two areas and deliberately deal with them separately,” says Martin. “The first category is engagement with our organisation as a whole, and the second is engagement with the individual’s role.”

Typically, the survey return rates are 60% to 70%, says Martin. “In terms of the whole organisation, we have a basket of eight measures, known as the engagement index. This looks at aspects of how employees feel about Norwich Union as an employer.”

At the micro level – that is, the employee’s individual role – Norwich Union asks 15 questions about day-to-day work via a survey – standard things such as whether they feel they have the right tools for the job and whether they are clear about what is expected of them.

HR then analyses the results, focusing on areas that senior managers can use to shift engagement levels further.

Last year, the survey generated 8,000 comments, and a lot of employees expressed concerns about the company’s decision to offshore jobs. In response, HR set up a project team to help them understand the reasons behind it.

Overall, employees have responded well to this, says Martin. Almost one-quarter of employees believe the company is more customer-focused, which is “a very significant shift”, he adds.

Norwich Union’s measurements of customer satisfaction – through surveys and feedback – back up the employee experience, suggesting the Corporate Leadership Council’s theory rings true. “Unfortunately, I can’t comment on how this links precisely into our business performance because we’re currently in a closed period, but the interim results last year proved very positive,” says Martin.

What can other companies learn?

Analyse your data with care: one of the problems with surveys is that there can be a myriad of data. Norwich Union only focuses on key engagement drivers.

Consider increasing the number of employee surveys you carry out: Norwich Union has increased the number of surveys from once a year to twice a year.

Never carry out a survey before you are about to give bad news: Norwich Union reduced headcount by 4,000 last September and decided to delay its survey until afterwards, rather than causing potential mistrust from employees.